FIIs India Stocks Strategy – Post Budget 2010

Post Budget 2010, the Indian markets rallied. However, is the rally sustainable ? Here are the various Strategies adopted by Foreign Institutional Investors – The Major Movers of Indian Market.

Bofa Merrill Lynch – The positive from the budget was that the Finance Minister has laid a roadmap for cutting fiscal deficit with a forecast of 5.5% in FY11 (vs 6.9% in FY10) and targeted capping Government debt to GDP ratio. But Sensex EPS change from budget is practically zero. Corporate earnings growth will be close to 25% in FY11. However, earnings upgrades which typically drive re-rating have stalled since Sept, 2009.

Given current valuations and the global issues we continue to expect range-bound markets with (a) rising inflation and interest rates and (b) supply of paper as worries for the market.

The market’s rally post the budget reflects a realistic and progressive F2011 budget. The government is achieving fiscal consolidation program which is positive for earnings growth and market performance.

Credit Suisse – The budget pushes our fundamental worries, viz, inflation, over-consumption and under-savings in wrong directions. It effectively converts fiscal issues into monetary problems. The RBI may not act soon with forceful counterbalancing policies, but the more they delay, the more will be the likely longer-term costs for the market.

Too many important budget items are projected either too high or too low compared to history. If they fail to materialise, as is quite possible, interest rate pressure could intensify later in the year. The consumption boost provided reduces the chances of near-term Sensex fall to our target of 13,000.